One factor contributing to the high LIBOR rates

Fed is expected to cut rates today to try to put some liquidity into the market. But the problem does not seem to be liquid rather than the unwillingness to lend as shown by the high LIBOR rates. (3mo at 3.83% as of 10/29/08)

Naked Capitalism pointed to an article that sees credit default swap as one of the reasons for high LIBOR rates. With the likes of Lehman going bankrupt, the seller of the CDS have to make good on their promise of paying the buyer par value of the bond. The seller would have to fund the payments somehow, most likely pushing up the LIBOR rates.

This article has so much jargon I have a bit of a hard time fully understanding it. But it seems like the notional for Lehman alone would be in the billions. All in all, this could have an affect on the LIBOR, I just question how much...